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Senate talks stall on shutdown, debt limit

By Lori Montgomery and Rosalind S. HeldermanThe Washington Post

Posted:
10/14/2013 12:01:00 AM MDT

Kaylee Cantrell, left, 13, from Lexington Park, Md., with Sherry Cantrell and Michael Cantrell, both from Crossville, Tenn., pose for a photo in front of a sign and removed barricades at the World War II Memorial in Washington Sunday, Oct. 13, 2013. The rally was organized to protest the closure of the Memorial and access to it by World War II veterans who traveled there on Honor Flight visits. The memorial has been closed to the public since the partial federal government shutdown. (Alex Brandon, AP Photo)

WASHINGTON — What started as a mad dash to strike a deal to lift the federal debt limit slowed to a crawl over the weekend as stalemated Senate leaders waited nervously to see whether financial markets would plunge Monday morning and drive the other side toward compromise.

Republicans seemed to think they had more to lose. After talks broke down between President Barack Obama and House leaders, GOP senators cobbled together a plan to end the government shutdown — now entering its third week — and raise the $16.7 trillion debt limit. Senate Minority Leader Mitch McConnell, R-Ky., then asked Majority Leader Harry Reid, D-Nev., to elevate negotiations to the highest level.

On Sunday — with the Treasury Department due to exhaust its borrowing power in just four days — Reid was wielding that leverage to maximum advantage. Rather than making concessions that would undermine Obama's signature health care initiative, as Republicans first demanded, Democrats are on the offensive and seeking to undo what has become a cherished prize for the Republicans: deep agency spending cuts known as the sequester.

Reid and McConnell spoke once Sunday, a telephone call in the afternoon, aides said. As he closed a rare Sunday session of the Senate, Reid characterized the conversation as "productive" and "substantive."

"I'm optimistic about the prospects for a positive conclusion to the issues before this country today," he said.

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The shift in focus away from the imminent threat of a first-ever default on the U.S. debt sparked outrage among Republicans and alarm among the world's financial leaders, meeting this weekend in Washington.

International Monetary Fund managing director Christine Lagarde warned on NBC's "Meet the Press" that a failure by the United States to make scheduled payments to investors "would mean massive disruption the world over. And we would be at risk of tipping yet again into a recession."

Republicans said any agreement to back away from the sequester cuts would be opposed by GOP senators and doomed in the Republican House.

The fight over the debt limit is "typically a point where you try to create reforms and reduce deficits, so to agree to something that raises spending from previously agreed-to levels, I just can't imagine that," said Sen. Bob Corker, R-Tenn. "I just can't imagine how that has any possibility of becoming law."

Democrats insisted that they have no interest in rolling back the sequester cuts now. Reid said that the Senate had already approved and sent to the House a measure that would leave the cuts in place through the middle of November, with "not a word about breaking (spending) caps," Reid said on the Senate floor.

Instead, Democrats said they objected to a debt-limit plan developed by Sen. Susan Collins, R-Maine, because it would permit the cuts to stay in place through March, allowing another round of sequester cuts to hit Jan. 15.

At that point, agency spending for fiscal 2014, which began Oct. 1, would be on track to fall roughly $90 billion lower than Democrats have proposed. And with the fiscal year half over, Democrats would have scant opportunity to renegotiate the numbers, a top priority.

On Sunday, Democrats familiar with the talks said Reid was pressing McConnell to accept a quicker deadline on a temporary measure to fund federal agencies and reopen the government and a longer deadline for raising the debt limit. Collins' proposal would extend the Treasury Department's borrowing authority only until the end of January.

"The plan would be, open up the government immediately for a period of time before the sequester hits (on Jan. 15) and then have serious discussions where we might be able to undo the sequester," Sen. Charles Schumer, D-N.Y., the No. 3 Democrat in the Senate, said on CBS's "Face the Nation." "I'm optimistic that could work."

Schumer noted that House Republicans have offered to roll back the sequester cuts in a proposal the White House rejected Friday. That plan would have immediately suspended enforcement of the debt limit and reopened the government in exchange for a plan to replace sequester savings in 2014 (and perhaps longer) with reductions to Social Security and Medicare proposed in Obama's budget.

"That was one place where the House Republicans and the president were not, you know, at total loggerheads," Schumer said, suggesting that a deal could be cut if Republicans would consider new revenue along with cuts to entitlement programs.

McConnell appeared to be less optimistic. The sequester cuts are part of $2.1 trillion in agency spending cuts over 10 years included in the Budget Control Act, the measure that raised the debt limit in 2011. Initially, Republicans, too, wanted to replace the sequester, particularly the portion that falls on the Pentagon. But since Obama won tax increases on the wealthy as part of a year-end fight over the "fiscal cliff," McConnell has taken to casting the sequester as a significant GOP victory from which the party cannot retreat.

"I think our main goal going into the year-end discussion is to not walk away from the bipartisan agreement that we made two years ago to reduce spending," he told reporters this summer.

On Sunday, McConnell maintained a stony silence, failing to show up at the Capitol for his usual opening speech on the Senate floor. Instead, he issued a statement throwing his support behind the Collins proposal, calling it a "bipartisan plan" brokered with five other GOP senators and six senators who caucus with Democrats.

"It would reopen the government, prevent a default ... and maintain the commitment that Congress made to reduce Washington spending through the Budget Control Act — the law of the land," McConnell said.

Some Democrats tend to agree with McConnell. During a caucus meeting Saturday, Reid and his leadership team spent more than an hour arguing to Democrats anxious about default that the Collins plan is not a good deal for the party.

On Sunday, Sen. Joe Manchin of West Virginia, one of the Democrats working with Collins, defended the proposal on "Fox News Sunday" as having "a little bit of move for everybody. In a divided government, you can't have it all your way."

Treasury Secretary Jack Lew has said that if Congress fails to lift the debt limit, he will exhaust his ability to conserve cash Thursday. Many lawmakers are leery of missing the Thursday deadline — particularly Republicans, who are already getting hammered in public opinion polls over the shutdown.

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